OPEC and its allies are considering cutting oil output by more than the 1 million barrels a day Saudi Arabia proposed earlier this week as the group is increasingly worried about the potential for oversupply, people familiar with the matter said.
The talks are preliminary, however, and the size of the final production cut will largely depend on the starting point the Organization of Petroleum Exporting Countries and its partners use, said one of the people, asking not to be identified because the discussions are private. In the most recent agreement, the alliance used 2016 output figures as the baseline number, but now they are discussing updating the starting point to a level closer to current production, the person said.
The final decision will be taken when producers meet in Vienna in early December.
OPEC’s biggest producer, Saudi Arabia, said on Monday that oil producers need to cut 1 million barrels a day, reversing a June decision to boost supply to contain a price rally. The group and its allies first agreed to limit their production starting in January 2017 to drain a global glut.
If the so-called OPEC+ group agrees again to reduce output, the baseline should be a recent production level, Saudi Energy Minister Khalid Al-Falih said when ministers met on Nov. 11 in Abu Dhabi.
Depending on the final baseline for the production cuts, the reduction could be in the range of 1 million to 1.5 million barrels a day, one of the delegates said.
Despite Saudi Arabia’s pledge to cut production, the decline in prices has accelerated this week. Brent crude oil fell 6.6 percent yesterday to just over $65 a barrel. At the start of October, it had reached $86 a barrel. The benchmark recovered to about $67 on Wednesday.
Investors have sold oil futures after the administration of President Donald Trump unexpectedly granted waivers to dampen the impact of sanctions on Iran. Traders are also concerned about the strength of U.S. shale production and the risk of a slowing global economy.
OPEC+ will cut or adjust production as needed to balance the market, United Arab Emirates Energy Minister Suhail Al Mazrouei, also OPEC’s current president, said in a Bloomberg TV interview on Wednesday in Abu Dhabi. Oil production is above expectations and OPEC+ needs to change its strategy, he said.
Yet Saudi Arabia still has work to do persuading other major producers — notably Russia, the largest non-OPEC nation in the alliance — to agree to curbs. “I would not want to focus purely on production cuts,” Russian Energy Minister Alexander Novak said in a Bloomberg television interview on Sunday. “We have to wait and see how the market is unfolding.”